S'pore luxury home prices surge 31%, April 21

well. first of all, i couldn't find the article on Straits Times online so i had to settle for a rather, well, nice blog that provides us with a whole gamut of articles from the Straits Times.


okay


in essence, the article first shows us a table of prices of homes in an assortment of countries, and it basically acts as a juxtaposition of the prices. and the table is here



so we see that in recent years, the average prices of top-end properties in the Republic have actually risen by 31 per cent to £1,197 (S$3,232) per sq ft. This is the sixth-biggest price jump globally, according to a survey by Knight Frank and Citi Private Bank.


now we know of the sub-prime crisis that had rocked, and is still rocking, America. the crisis had been labeled as one of the worst since the Great Depression. so one might actually assume that a crisis would undoubtedly result in a lower income right? so let's just apply some elasticity concepts here. now a recession would indubitably lead to a decreased income. and as the name suggests, "Luxury homes" are, well, a luxury good. thus the luxury homes can in fact be deemed income elastic. so wouldn't a decrease in income due to the recession lead to a greater than proportionate decrease in demand? if that was the case, prices of the homes would inevitably plummet.


however, the converse is true, and in actuality, the prices for luxury homes in Singapore have risen by an incredible 31%. and globally, the 2008 Annual Wealth Report found that the prices of luxury homes around the world increased, on average, by 11 per cent last year.


a probable explanation for such an occurrence could be aptly explained and accounted for.


The sub-prime credit crisis did indeed result in falling prices, restricted financing and declines in sale volumes. And considering the fact that the USA has established itself as a world economic giant, with a myriad of countries (including Singapore) reliant on trade with the USA, one would probably expect the crisis to hit Singapore as well, and probably lead to a sharp drop in income. However, it has been observed that the sub-prime credit crisis has led to an emergence of a new breed of super rich.

The rise in commodity price rises have brought wealth and created a significant number of additional new high net worth individuals. This had added more than 8,500 additional wealthy residents in 2007.

As such, this rising affluence has generated another market for second homes and holiday homes.


so while a recession should, by right, result in a decreased income, it has conversely led to a spike in income for a significant number of individuals. as such, this increased affluence has led to a spike in the demand for luxury homes in Singapore.


now i must seek your pardon for being incapable of drawing a graph using a computer, because i actually know next to nothing about drawing a graph using whatever software the computer may provide. so i shall attempt to explain using words. and considering the level of economic knowledge this class possesses, i'm quite certain that you would understand.


so here i go.


2 possibilities.


1) supply remains stagnant as in a short period of 1 year, we would probably not expect too sharp a rise in the supply of luxury homes.


2) supply rises. producers attracted by the soaring prices of the commodity (which in this case is the luxury home), thus increasing supply. SS shifts to right.



either way, with the increased demand for luxury homes due to increased affluence, the DD curve shifts right as well..


this would lead to a significant rise in the prices of luxury homes in Singapore, which in this case was a 31% rise.


so there we have an account of the rising prices of luxury homes.




i must say that my answer is not perfect and i know that it isn't. so comment on it and i can learn from it (:

so that's just about it.



Bryan Ong

First Article: Biofuels won't solve world energy problem: Shell April 20, 2008
Second Article: Food price rises are 'mass murder': UN envoy April 20, 2008

I've got two articles today, courtesy of Straits Times.
Well, the first is very relevant to what we're doing in both Economics and General Paper. We've been reading articles bout Biofuels, oil, and food shortages.

According to the article, the chief executive of Royal Dutch Shell has attributed the shortage of food crops by claiming that 'I don't think we should blame oil, we should blame biofuels.'

From Wikipedia:
The use of renewable biofuels in lieu of fossil fuels is said to reduce greenhouse gas emissions and increase energy security[3] (but see Carbon emissions).
One of the greatest technical challenges is to develop ways to convert biomass energy specifically to liquid fuels for transportation. To achieve this, the two most common strategies are:
1. To grow sugar crops (sugar cane, and sugar beet), or starch (corn/maize), and then use yeast fermentation to produce ethanol (ethyl alcohol).
2. To grow plants that (naturally) produce oils, such as algae, or jatropha. When these oils are heated, their viscosity is reduced, and they can be burned directly in a diesel engine, or the oils can be chemically processed to produce fuels such as biodiesel.

As biofuels now have been negotiated and agreed to replace transport fuels so as to reduce environmental issues such as changing the climate, it is taking off percentages derived from food crops, resulting a shortage in food. As "First-generation biofuels usually come from food crops such as wheat, maize, sugar or vegetable oils", there will be a decrease in supply for food. Besides jeopardising the supply for food, it also battles "competition for sweet water in the world". Apparently, there was no realisation to the repercussions of growth of biofuels through crops quoting from the 1st article that "An official from the International Energy Agency also said the impact of biofuels should have been forseen" (Wow, how efficient)

Due to this phenomeneon, it has lead to food prices rising, which is an unintended consequence, which means supply has decreased as crops are now allocated to the growth of biofuels, resulting an increase in quantity demanded of food. This, to me, also brings in the factor of static efficiency, mainly allocative efficiency. In a situation of allocative efficiency, no one could be made better off without making someone else worse off. This situation, can be illustrated through a Production Possibility Frontier aka PPC graph - all points on the PPC curve is said to be allocatively efficient because we cannot produce one product without making affecting the production of another good. I've decided to add a curve to help visualise.





So anyway, the 2nd article is just to show how people are saying that due to the production of biofuels, it has created a shortage in food, with it's rising food prices, where the poor are suffering in lieu of this "silent mass murder". Yes, we all know of the increasing food prices. I will probably post up bout soaring price of rice soon.

Melissa Tan

well. this post is done with no knowledge of what an econs blog should or should not have. it is also done without knowing what the econs blog is for and what it should contain.


you probably know that the above was a disclaimer to anything i have to say. after all, all smart people have disclaimers to cover their... yeah you get the picture.


Economics Word of the Day (as taken from esteemed online dictionary: Merriam-Webster)

Main Entry:

mo·nop·o·ly

Pronunciation:

\mə-ˈnä-p(ə-)lē\

Function:

noun

Inflected Form(s):

plural mo·nop·o·lies

Etymology:

Latin monopolium, from Greek monopōlion, from mon- + pōlein to sell

Date:

1534

1 : exclusive ownership through legal privilege, command of supply, or concerted action
2 : exclusive possession or control
3 : a commodity controlled by one party
4 : one that has a monopoly

and speaking of Monopoly, personally i think it's very wrong that only one company produces the board game